ESG Reporting Duty

In September 2018, the SFC announced a strategic framework to contribute to the development of green finance in Hong Kong. With this objective in mind, the environmental, social and governance (ESG) factors continue to stay as the focus. Different policies have been introduced to encourage beneficial social contributions from the industry. One of the measures to which we are frequently asked about by our clients is the ESG Reporting Duty. 

Who is Subject to the ESG Reporting Duty?

Effective from August 2022, all fund managers are required by the SFC to:

1. take climate-related risks into consideration in their investment and risk management processes -> The Process Part;
2. provide investors with appropriate disclosures -> The Disclosure Part.

While all fund managers are subject to the Baseline Requirements (refer to related sections below), Large Fund Managers (Current Definition: Fund Manager with HK$8 billion AUM) will be further required to comply with the Enhanced Standards. 

ESG Compliance Approach – Process

(With focus only on Baseline Requirements)

As a recap, for the Process Part, fund managers are required to take climate-related risks into consideration in their investment and risk management processes.

To decide in practice what should be done, the fund managers should firstly consider:

1. Are climate-related risks relevant to their investment strategies?
2. Are climate-related risks material to their investment strategies?

Depending on the three possible combinations of answers, we have briefly summarized the corresponding actions that should be taken for your easy reference. Kindly note that such table is just to highlight the keys. 

Example: 

To illustrate better, a fund manager managing a fund investing heavily on cement and steel production companies shall consider the climate-related risks are both relevant and material, especially since Scope 1 and 2 GHG emissions are regarded to have a large impact on such companies financially. In that case, it shall ensure it has introduced adequate arrangements in ways of (1) Governance; (2) Investment Management and (3) Risk Management. 

ESG Compliance Approach – Disclosure

(With focus only on Baseline Requirements)

As a recap, the second part of the SFC’s relevant requirements is about disclosure. In fact, fund managers are required to make disclosures for providing investors with sufficient information across various portfolios. However, such disclosure requirements are only applicable to fund managers who are responsible for the overall operation of funds (ROOF), but not to those who manage only part of a fund.

Just like above (The Process Part), what to disclosure heavily depends on:

1. Are climate-related risks relevant to their investment strategies?
2. Are climate-related risks material to their investment strategies?

Depending on the three possible combinations of answers, we have briefly summarized the corresponding actions that should be taken for your easy reference. Kindly note that such table is just to highlight the keys. 

How Alles Helps

Apart from fulfilling the relevant obligations, Fund Managers are also required to prepare an ESG Report annually. Alles is ready to advise the applicable requirements & prepare the ESG Report.   

Here are some frequently asked questions from our clients in our first call:

• If we don’t manage funds but only discretionary accounts, do we need to prepare an ESG report?
• Are all aspects of the Baseline Requirements applicable to us?
• How can we determine the scope of the ESG requirements?
• What data do we have to collect for the purpose of drafting an ESG Report?

To help, we will:

1. Discuss with our client to understand its structure and businesses, and determine the entities/assets that should be covered by the report
2. Provide a data collection template to collect data necessary for disclosure
3. Deliver a briefing to data owners on what, how and when to provide
4. Consolidate and perform a high level review and follow up with data owners for any abnormalities upon collecting the data
5. Draft the disclosure report utilizing data collected above, in accordance with the SFC requirements on climate disclosure

Back to:  Type 9 (Asset Management) Licence    On-going Compliance Support